Whether your kids have flown from the coop or you’re just looking for a lifestyle change, you’ve probably thought about downsizing. But, does downsizing your home really allow you to upsize your life? Experts weigh in to help you decide if moving to a smaller abode is the right choice for you.
1. Buying and selling in the same market
Having to buy and sell in the same market can be challenging yet, Principal of Refined Real Estate and Director at REISA Victor Velgush says doing so in a hot market – like the one we’re currently seeing – can pay off.
“In a strong market, your upside of larger property is going to be higher than the extra you’re paying for the smaller property, so you’re going to have a win,” Velgush says.
“If your house is going up by 10 per cent, which is $200,000, and the one you’re buying is going up by 10 per cent, which is $50,000, you’re $150,000 better off.”
For downsizers fearful of not securing a new property after selling their old one, Victor says there is less chance of that happening currently.
“In the current market it’s a smaller risk to buy now with a 60-day settlement, especially if you can talk to your bank and have some kind of fallback plan or bridging loan, and then put yours on the market,” Victor says.
2. The costs involved
Though selling your home to move into a smaller one seems like a simple enough feat, Director and Senior Financial Planner at MBA Financial Strategists Darren James says it may not always be a cheap one.
“I think the first thing that people need to take into account is the transaction costs in downsizing,” Darren says.
“Some people have the objective or the belief that if they downsize that’ll help them and fund a lot of their retirement.
“But, by the time they pay transaction costs, they quite often end up coming out with not much money to spare, if any.”
Before you downsize, consider the agent fees, legal fees, stamp duty and moving costs to ensure you won’t be out of pocket.
3. Why you’re downsizing
Downsizing is a good option if you want to cut utility costs and reduce the amount of maintenance needed on your home.
Larger homes can become hard to maintain and though many opt to downsize so they can forgo the days spent maintaining an extravagant garden, Darren says it’s wise to ensure this isn’t the sole reason.
“Because of maintenance, or that sort of thing, if you’re trying to free up some money, just be very clear on what those transaction costs are,” Darren says.
“You can potentially get maintenance people or gardeners in, to do the maintenance around the house that you’re currently in for the same price.
“But, if you’re killing two birds with one stone and cutting utility costs, then it is more beneficial.”
4. The emotional connection to your home
One of the biggest drawbacks of downsizing for most is the thought of leaving a family home or friendly neighbourhood.
Downsizing can be an emotional process, yet, Victor says it can also be equally as exciting.
“We come across people all the time who are worried about the lifestyle change, but the reality is that life has its seasons,” Victor says.
“Enjoy the benefits of the new phase, which is sitting out on your little portico with a newspaper knowing that you don’t have empty rooms and you don’t have to worry about doing the lawns.”
5. Where you’ll move to
Downsizing gives people the opportunity to move closer to friends, family and the things they love.
Carefully selecting your new neighbourhood can also help ensure you are left with a reasonable profit after you’ve made the switch to a smaller home.
Victor says those opting to move to the regions might benefit the most when downsizing.
“Some of those regional areas haven’t experienced the same growth we’re seeing in the city yet,” Victor says.
“A lot of people might be fearful of moving from their suburb… But they shouldn’t be too afraid of moving into a different area, especially if it means you get an ocean view for $100,000 less.”
6. Contributions to superannuation
Darren says those aged 65 and older who have lived in a home for 10 years or more may be eligible for the Australian Government’s Downsizer Contribution scheme.
If entitled, empty nesters can make a downsizer contribution of up to $300,000 from the proceeds of their home’s sale.
This super addition isn’t subject to the $1.6million total balance restriction, providing a nice boost to your super fund.